Top tenant: Wal-Mart Stores Inc. is among the retailers leasing space in shopping centers owned by Inland's nontraded REITs. Bloomberg News Inland American Real Estate Trust Inc., the largest nontraded real estate investment trust with $9.7 billion in assets, is offering a small number of investors liquidity, just a month and a half after the REIT signaled that it may be in line for a merger or a listing of its shares.
But the offer may be a disappointment to some.
In a letter to investors last Friday, the REIT's management wrote that it was offering to purchase for cash up to $350 million of its shares, or about 6%, at a price specified by the tending stockholder of not greater than $6.50 or less than $6.10 a share.
The company may increase the number of shares in the offer, called a modified “Dutch auction,” by up to two percentage points, which could increase the dollar value of the offer by about $120 million.
Launched in 2004, Inland American was sold for the most part at $10 a share and eventually raised $8.90 billion, the most ever for a nontraded REIT.
At the end of last year, Inland American said that its estimated value was $6.94 a share.
Inland American spokeswoman Nicole Spreck said that no one from the company was available to comment.
The company has seen better results of late. Last year, it posted earnings per share of 27 cents, versus an 8-cent loss in 2012.
The shareholder letter, signed by chairman Robert Parks and president Thomas McGuinness, recognized that the “Dutch auction” tender offer was less than what investors paid.
“We acknowledge that the range of prices is below the value at which most stockholders purchased their shares, but we believe our strategy will increase the value of our stock on a long-term basis,” they wrote. “Therefore, not tendering your shares and continuing as a stockholder in the company is something every stockholder should consider.”
The offer commenced March 14 and will close at the end of business April 11.
Inland American has been in the spotlight the past few months. In January, it told investors that it was suspending its share repurchase program beginning at the end of last month, with the company saying that it could reinstate the plan later this year.
Halting a share repurchase program can be an indication of a pending merger or acquisition, REIT and broker-dealer executives said at the time.
The REIT also told shareholders last week that it was becoming self-managed for no fee.
Many REIT sponsors in the past have imposed the charge — commonly referred to as an internalization fee — when the contract between the REIT and its outside adviser expires, with the REIT th! en acquiring the outside adviser. That charge, which has drawn criticism because it typically isn't fully disclosed in offering documents, has cost investors in several prominent REITs hundreds of millions of dollars.
However, over the past few years, the nontraded REIT industry has moved away from that business model and fee.
“Self-management will eliminate the quarterly advisory fee paid by the REIT to its business manager,” according to the letter. “Also, the REIT will not pay an internalization of self-management fee in connection with the acquisition of its business manager and property managers.”
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